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Why Tellabs Shares Popped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Tellabs (NASDAQ: TLAB) jumped 16% today after the company announced a big special dividend.

So what: The company will pay a $1 per share dividend on Dec. 21 to shareholders of record on Dec. 14. The company also said that Interim CEO Daniel Kelly has been given the job permanently.

Now what: A big dividend is great for shareholders, but the reaction is a little overdone. The stock is up $0.48 as I'm writing, nearly half of the dividend that will be awarded. This may be a buying opportunity between now and the ex-div date, but I don't think it is at the current price. The market has overreacted wildly to these special dividends in recent weeks and many stocks have fallen after the euphoria wore off.

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Tellabs has about $1B cash in excess of their needs. What they have decided so far is to pay $1 per share of special dividend (Total $368M usage of cash hoard) and also stock buy back of $225M. Even after they two events they will still have $400M of excess cash to finance some acquisitions or other growth opportunities.

I must say these are good moves to award shareholders. Howver I am still evaluating at what price should I sell the stock or just take the dividend. I will wait and see how the stock price moves in the new two weeks. If it hits $4 per share then I will sell it.